9559. PEOPLE OF THE STATE OF NEW YORK BY ANDREW W. CUOMO, ETC., plf-ap, v. CHARLES SCHWAB & CO., INC., def-res — Eric T. Schneiderman, Attorney General, New York (Brian A. Sutherland of counsel), for ap — Quinn Emanuel Urquhart & Sullivan, LLP, New York (Faith E. Gay of counsel), for res — Appeal from order, Supreme Court, New York County (O. Peter Sherwood, J.), entered October 31, 2011, which granted defendant’s motion to dismiss the complaint pursuant to CPLR 3211 (a)(7), deemed appeal from judgment, same court and Justice, entered April 4, 2012, dismissing the complaint, and, so considered, said judgment unanimously modified, on the law, to deny the motion as to the second and third causes of action insofar as they are based upon conduct that took place prior to September 5, 2007, and otherwise affirmed, without costs. This is an enforcement action brought by the Attorney General under the Martin Act (General Business Law art 23-A) and General Business Law §349 as well as Executive Law §63(12). The Martin Act causes of action are based on General Business Law §352-c(1)(a), which, where applicable, prohibits fraud, concealment, suppression or false pretense, and General Business Law §352-c(1)(c), which prohibits false representations or statements to induce or promote the issuance, purchase or sale of securities within or from the State. It is alleged in the complaint that defendant, Charles Schwab & Co., Inc. (Schwab), a registered securities broker-dealer, engaged in fraudulent and deceptive conduct in the sale of auction rate securities (ARS) to the investing public. The Attorney General asserts that Schwab misrepresented ARS to its customers as safe, liquid investments while concealing the fact that they were complex financial instruments with significant, inherent and increasing liquidity risks.
An explanation of the Attorney General’s claims requires a description of the ARS market, which is set forth in the complaint as follows:
